The economic conspiracy against the average American (w/ statistical evidence)

Introduction
This thread will give some general information about how, since 1970s, the wealthiest in the world have advanced their economic interests at the expense of those of the average American worker through the twin prongs of wage suppression and interest rates.

Wages
Short-term unemployment is low, so things must be going well for the American worker, right? Well, the story is a little more complex than that. Taking a look at data for real wages, i.e. nominal wages adjusted for inflation, in the private sector and one can see that the average wage for American workers plateaus in the mid-1970s after years of steady increase since the end of WWII.


Note: Nominal wages are the wages on a paycheck, they reflect little absent the price level. Real wages are nominal wages adjusted for the price level (inflation).

From above, one can see, for instance, that the average real wage for the American worker (private sector) in 1975 was 8.12 $/hr. Thirty years later, in 2005, the average real wage for the American worker (private sector) was 8.17 $/hr.

Labor Productivity
Well, one might argue that US workers must be producing less, and therefore are getting paid less. If one takes a look at labor productivity, this assertion is simply false. I’ve indexed real wages for the manufacturing sector and labor productivity in the manufacturing sector (productivity figures more reliable in manufacturing) and posted the resulting graph below.



As one can see, even though manufacturing labor productivity has nearly exponentially increased since 1949, wages in the manufacturing sector still plateau around the mid-1970s.

Interest Rates and Inflation
The rentier class, the class of people at the tip-top of our economic food chain who live off of returns from equities (the own the corporations) and bonds (the own the debt), were facing lower interest rates, bond yields, profits and returns in general in the 1970s.

What happened in the 1970s? Inflation.



Economic groups of people (e.g., workers, owners, and disenfranchised) were all demanding greater pieces of the pie by the 1970s. As workers upped wage demands (increased worker militancy in late 1960s and early 1970s) and the government upped taxes to finance things such as Vietnam or the Great Society, firms upped prices to keep profit levels up (many argue that the oil shocks led to inflation, but I argue that they were not the root of it).

These price level increases cut into real interest rates (i.e. interest rates adjusted for price level) and profit rates, lowering the returns to the rentier class. Wage demands cut into the profits of the firms owned by the rentier.

Revenge of the Rentier
So, the wealthiest of the wealthy, the rentier class, fought back. At their behest, the Federal Reserve jacked up interest rates in 1979-1980 under the name of fighting inflation, but with the intent of helping restore returns to the over-class. Big business conservatives wrested political control in the US and UK, heading a more general movement by the rentier (those behind big business) to crush the labor movement, suppress wages, cut taxes on the rich, and remove redistribution programs for the poor. By raising interest rates and suppressing wages, the rentier restored their interests and hurt those of the common American. The data above shows this.

Things Today
Wages are still kept down, helping to up profits for firms (owned by the rentier). Inflation is still Public Enemy #1, protecting the rentier from cuts into real interest rates. Real interest rates are still historically high, despite popular belief. The focus of culture and politics is on finance, money, and the shareholder-god.

[edit on 20-8-2006 by ArbitraryGuy]

[edit on 20-8-2006 by ArbitraryGuy]

Sources:
Graphs by me with data from the Bureau of Labor Statistics and the Federal Reserve Bank of St. Louis. Italian economist L. Pasinetti popularized the concept of the “Revenge of the Rentier”. Ask me if you'd like to read more, I'll direct you to some more sources.

Thank you for reading my ideas. Please, feel free to comment. If you think something has been left out, or that I should look into something, please let me know.

Don't forget the effect of essentially "open borders" whose result (we will leave to one side the issue of actual intent here) has been to drive down wages in the service sectors, the Trades, etc.

Those sectors of the economy which, with the demise of America's manufacturing base, have traditionally provided a living income for large sectors of the American Middle Class.

Seems like whenever this issue is raised, one has to defend oneself against the charge of Racism...I am no more racist than your average person which means, to me, that I probably harbor some racist feelings, but I make a conscious effort to call myself on it, and separate out the issues from my own human hangups which, btw, are not confined to the "white race".

The fact is (imho) that the uncontrolled influx of unskilled labor, in the context of an overwhelmingly non-union work environment does contribute to a weakening of income in these areas. I have no hard statistics for this belief; only the observations of a skilled worker in the Trades for the last 30+ years.

Any attempt to make this country more "secure" must address the issues of financial "security" posed by uncontrolled, illegal migration of workers to this country...no matter where they come from, or what they look like.

Just my $.02

Is it a full moon tonight?....




[edit on 49o08e314208e 42 by apocalypticon]

Originally posted by ArbitraryGuy
(many argue that the oil shocks led to inflation, but I argue that they were not the root of it).

I'd like to hear more about that argument. I think the case for resources being at the root of all economic activity is a strong one.

Originally posted by apocalypticon
The fact is (imho) that the uncontrolled influx of unskilled labor, in the context of an overwhelmingly non-union work environment does contribute to a weakening of income in these areas. I have no hard statistics for this belief; only the observations of a skilled worker in the Trades for the last 30+ years.

I think the statistics and economic theory do support that. The thing is, North America is becoming a free(er) market and more people means more wage pressure. Throw globalisation in there with 6 billion+ competing and the jobs start to migrate, never mind the people.

But hey, everybody knows that the "free market" is god, even though Adam Smith never really argued for such. Right?
.

Originally posted by Gools I think the case for resources being at the root of all economic activity is a strong one.

I agree with this wholeheartedly; I mean, unless you factor in the general spirit of adventure, I would think that most people don't gravitate from their homes willingly unless they lack resources for self-improvement which they can see are available elsewhere.

I pretty much think I understand why some people come here; the crew I work with is 95% temporary immigrant status. These are guys (and 2 gals) who have said that they have no plans to try to stay in the US longer than 15 yrs. A couple of them have already given 2 yr. notices to the boss. 2 are from Portugal, 1 is from England, and the rest are from Mexico. 4 of them are here legally. Some already have property in Mexico, and fully plan to retire there, where their money goes much further. And everybody is on payroll, so everyone pays taxes.

I always feel like a heel (a term from my archaic generation ) when I think about the whole "movement of jobs/immigration" issue because I do want the rest of the world to benefit for themselves (provided they aren't intent on our destruction, but I believe that has more to do with Governments).

I mean, who in their right mind doesn't want to see your average person anywhere in the world living in peace, health and economic security. This is at the root of just about every religion, even though some define the benefactors pretty narrowly (I think I just contradicted myself, but you get what I mean ).

I guess the question for me is in how to overcome making it a "zero-sum" game.

But hey, everybody knows that the "free market" is god, even though Adam Smith never really argued for such. Right?

Yeah ...Upton Sinclair pretty much nailed it in The Jungle.




.

Originally posted by Gools

Originally posted by ArbitraryGuy
(many argue that the oil shocks led to inflation, but I argue that they were not the root of it).

I'd like to hear more about that argument. I think the case for resources being at the root of all economic activity is a strong one.

Although resource constraints may play an important role in inflation, as do many other forces, I believe that economies more frequently hit institutional constraints before such resource constraints. There is a strong argument that the inflation of the 1970s was the result of massive institutional change in the US (that change being one from a more worker-friendly economy to the more financialized economy of the rentier, outlined in my first post).

Social unrest, institutional change, and technological changes creates uncertainty, structural change, etc which may cause price increases and allow supply shocks (such as oil price increases) to be more potent in their inflation-creating power. Perhaps, too, at times of institutional change, inflation is also more destructive (inflation isn’t always bad as people make it out to be).

Rather than resources being at the root of economic activity (this isn't saying they don't affect it), I tend to believe that the so-called economic "laws" are contingent upon institutional and historical forces. It's an un-orthodox methodological preference.

Originally posted by Gools

Originally posted by apocalypticon
Don't forget the effect of essentially "open borders"....
I have no hard statistics for this belief; only the observations of a skilled worker in the Trades for the last 30+ years.

I think the statistics and economic theory do support that. The thing is, North America is becoming a free(er) market and more people means more wage pressure.

Econometric evidence is fairly split on immigration's affect on wages, so we really don't know what that affect is. That said, I think there is a strong theoretical argument behind the arguement that native low-skilled workers are adversely affected.

Global commodity and capital flows demand a global flow of workers. The large scale migrations of peoples are a result of trade policy. I would have included trade policy in the original post, but I ran out of time/word count.

Originally posted by Gools
But hey, everybody knows that the "free market" is god, even though Adam Smith never really argued for such. Right?
.

It's always good to hear when somebody has actually knows what Smith really said .

Thanks for your interest in such a discussion, Gools and apocalypticon.

Originally posted by ArbitraryGuy

Thanks for your interest in such a discussion, Gools and apocalypticon.

Hey, no problem ArbitraryGuy. Good discussion is one of the great Spices of Life. I won't even try to pretend to be an economist or anything like that; my undergrad was in History. I have just seen the decline for the newer (say...last 10 years or so...workers) workers as far as wages are concerned.

It's the History Thing which puts me at two minds on these topics. We are a nation of immigrants...and each generation has exploited the cheaper labor force of succeeding immigrant generations.

And I don't know statistics for other periods, but I seem to recall that only about 50% of immigrants (as opposed to emigrants) who came to the Sierra Gold Fields during the Goldrush came to stay; they either made their fortune or lost it, and returned to their native homes.

Life is more complicated than TV...

Originally posted by apocalypticon
I won't even try to pretend to be an economist or anything like that; my undergrad was in History. I have just seen the decline for the newer (say...last 10 years or so...workers) workers as far as wages are concerned.

History is at the basis of economics.

What gets me is why, although wages have stagnated for the past 30 years and quality of life (for Joe T. American) has decreased, workers aren't more peeved or more open and militant about the issue of declining/stagnating wages.

Originally posted by apocalypticon
We are a nation of immigrants...and each generation has exploited the cheaper labor force of succeeding immigrant generations.

That's why I find it hard to be either "pro-immigration" or "anti-immigration," too. Rather than seeing immigration as an inherently good or bad thing, I see it as a natural fact/symptom of our economic system. Only by addressing the root causes of a symptom (in this case, trade policy/global capitalism), can the symptoms be addressed.

I recently heard that income tax was begun to be required from wages in the 1940's, probably just after WWII, I'm thinking. Is that true? If so, could that have been planned to keep the money out of the worker's hands along with the other things mentioned here?

edited to add a phrase for clarification.

[edit on 24-8-2006 by curiousity]

Originally posted by ArbitraryGuy
What gets me is why, although wages have stagnated for the past 30 years and quality of life (for Joe T. American) has decreased, workers aren't more peeved or more open and militant about the issue of declining/stagnating wages.

There are many factors that go into this. One is that even with stagnant wages, the living standards of American workers are OK when compared to those in many countries.

Another thing is education. One has to really see the economics of the issue (thanks for posting some facts here, by the way). If one is consuming the "mass culture" and does not have time or desire to read up on things like that, there is no way one can develop an understanding of what's really happening in the country.

Yet another thing is the freedom of trade. If the wages go up, American product will become uncompetetive in the world markets, and we have already seen some of that.

Once the U.S. Economy collapses will the rich be any better off than the poor??? I am sure there are a lot of poor people out there willing to eat the rich and the rich won't have enough people nor resources to fend them off.. How can a rich guy who hasn't lifted a finger all of his life fend off a gang member??? Lot's of dead rich people coming with the way things are going.... Remember the King of France tried this, lost his head.

Originally posted by Aelita
Another thing is education.

I think this is key. Lack of education leads to apathy towards self, community, and society.

Originally posted by Aelita
If the wages go up, American product will become uncompetetive in the world markets, and we have already seen some of that.

Unless corporations are willing to let wage increases cut into profit rates, rather than just raising prices as wages increase to keep profit rates constant (if firms use mark-up pricing). Thus, it's not domestic worker against international worker, it's worker against rentier (shareholder/owner/capitalist).

Social Security was started because of the appalling conditions of poor elderly workers. The story is too long to go into here, but it's interesting reading.

As to the charts, have they been adjusted for inflation and other factors?

Originally posted by Byrd
Social Security was started because of the appalling conditions of poor elderly workers. The story is too long to go into here, but it's interesting reading.

Part of the rentier agenda is to financialize social security, letting Wall Street (i.e. themselves) have control of it. Since the change of power to the rentier (or, perhaps the re-assertion of their power) in the mid-late 1970s, pro-worker and working-poor institutions, such as social security, have been under fire.

Originally posted by Byrd
As to the charts, have they been adjusted for inflation and other factors?

All real variables are by definition adjusted for inflation. Thus, real wages are adjusted for inflation, whereas nominal wages are not.

EDIT: Minor clarification.



[edit on 25-8-2006 by ArbitraryGuy]

[edit on 25-8-2006 by ArbitraryGuy]